De Beers used to run and manage generic diamond marketing for the entire diamond industry, even though it was not a diamond polisher, jewellery maker or retailer. De Beers did this because it was the world’s largest rough diamond supplier, the source of more than 80% of the supply of goods.
From their perspective, it made sense to pay for the brilliant "A diamond is forever" campaign because even though it was not a retailer, most diamonds were sourced from De Beers.
However, the company’s market share has declined considerably over the years, and when it arrived at around 40%, it didn’t make sense for the company to pay for 100% of the advertising when 60% of the budget benefitted competing mining companies. De Beers ended one of the most successful marketing campaigns in history and focused on promoting its own consumer brand Forevermark.
The end of the "A diamond is forever" campaign also meant the end of a unified global vision and strategy for the diamond industry. Since then, there has been no combined thought about direction, no charted course for the future. The influence of the now defunct campaign is still lingering, but it is fading and soon will have little to no influence on the consumer market. A generation never exposed to "A diamond is forever" will soon become adults and active consumers, and they may not understand why to buy an engagement ring set with a diamond because they won’t see the value proposition.
As it ended the marketing campaign, De Beers tried a new approach, Supplier of Choice, which directed its clients to attempt vertical integration and make heavy investments in marketing. This was generally considered an unsuccessful approach. Companies struggled to perform in areas they knew very little about.
When every section of an industry tries to go all the way from mining to retail everybody loses. I believe it should go the other way around. Let diamantaires do what they do best. There is a need for separation. Mining companies should mine and not go down stream as some are trying, rough diamond traders should market rough diamonds, manufacturers should continue to develop their knowledge and polish diamonds and retailers should sell diamond jewellery. Instead of making healthy profits resulting from high professionalism, profits are squeezed to low single digit margins. This might lead to the disappearance of an entire industry.
A new vision and strategy needs to emerge for the diamond industry. I believe that we shouldn’t consider the diamond sector anymore as one that provides a unified product, diamond jewellery, to celebrate joyous occasions and important life milestones. This is because there are diamonds and there are other diamonds! For us, the next big campaign should be to promote diamonds as a way to store value. We cannot continue having diamonds sold next to non-luxury products, we cannot sell diamonds as a wealth preservation tool when they are sold next to a pair of jeans.
But how can this be achieved? Without De Beers as a custodian of the diamond industry, the diamond sector is its own custodian and has to rearrange its own destiny and future by reinventing itself. The diamond for love campaign is fading away. We think that most diamonds of a certain size and value will not be sold through retailers anymore – unless the consumer chooses it. The reality is that larger diamonds with higher qualities and colours are anyhow goods which are taken on consignment from manufacturers/wholesalers and therefore justify the mark-ups and overheads that increase the prices these diamonds are offered for. Instead, if they are offered in the right place in the value chain with an optimal level of transparency and accompanied by the right documentation, they will serve as a store of money or for wealth preservation.
Diamonds will be valuable and attract people to purchase them for wealth preservation only if they continue to buy them. It is no different to real estate. Without demand, could we expect them it to appreciate? We need to show a new way of highlighting the lingering value of diamonds and grow their value. We need the value of diamonds to be forever.
The future vision of diamond consumption should have three parts:
- The first, the traditional market for diamond jewellery. With a popular price point and made from the cheaper part of diamond production, this category can compete with other gifts in the shops. Such diamonds may face some competition from lab-grown diamonds, which are already priced some 30% below natural diamonds. It is a niche market that will have to be treated differently as it has its own economic behavior.
- The second market is that of fine and high-end diamond jewellery. These niche market items are expertly designed and are fit for the bridal and the luxury sector. The cost of these jewellery items is comparable to other high-ticket luxury items and will compete with them in stores. This section of the market may face some competition from lab-made diamonds, however, as I said before they are differentiated market items.
- The third section of the market, and the one with a growing importance, is diamonds for wealth preservation - a tool to store value. These diamonds will be bought and treated specifically for that purpose and with a new methodology that is based on the economy of rarity. It will be a separate market, with its own economic behavior. In this category are the rare higher quality and color diamonds to which the economy of rarity will apply to store value. These are diamonds fit to store value. They’ll need to be purchased in the right part of the diamond pipeline, purchased correctly, have an accurate grading report that goes beyond the 4Cs to serve as a tool to store value and an idea of wealth preservation. In this category, lab-grown diamonds have no place because they are a technologically driven product and the economy of rarity does not apply to them.
This last section of the market is yet to be established as a widely used category. It is the one that will pull the diamond industry out of the current rut and uncertainty it is in. Just as “Google it” is a synonym for ‘Search’, “Diamonds” should be synonymous with ‘Wealth Preservation’ in the mind of the public. We expect a meaningful part of the diamond stream to be offered through this category. These diamonds must not have the justified retail markups and overhead added to them that will influence the resell value of the diamond. If the client wishes to set the diamond in a jewellery item, that will merit the added value of the jewellery and does not influence the re-sale value of the diamond.
But most importantly, this requires a new vision for diamonds. This will include a completely new education on how to perceive diamonds as a tool of storing value serving the idea of wealth preservation with diamonds, one that fully departs from the memorable and outstanding “A diamond is forever” campaign.
The new education has to be based on a fully transparent market to gain the trust and understanding of the marketplace. This means disclosing everything about the characteristics of the diamond, from how it was priced, to making information continually available on its current value. A spot market, where trade is transparent and regulated – like the stock market - is also needed. Through it, so-called recycled diamonds can be bought and sold.
Consumer education about every parameter of a diamond and how each component of the diamond pushes up or brings down its price must be created and offered in a brilliant way so all understand the premise and the promise. This is an essential ingredient. We recommend the market to rely on the 4Cs and beyond, so people are able to understand the value of a diamond on their own – and why two diamonds with the same grading are priced differently.
Knowledge is important today more than ever before because differentiation and trust is at the heart of selling and pricing. This, of course is true everywhere, not only when selling a polished diamond to the end user. For example, as more rough diamond marketing is moving to tenders, being able to buy rough at the right price is of growing importance, especially with the very narrow margin that manufacturers have. They suffer from huge profit pressure because of high rough prices, high cost of manufacturing and higher taxes.
There is currently no better set-up in the value chain for the future of diamonds, than adding a robust category of wealth preservation through diamonds. It will provide a new and important revenue stream for the mid-section of the diamond pipeline, it addresses the transparency issue, it generates a solution for the financing issue and it improves knowledge, for every part of the diamond industry.
There is no better set-up for the future of diamonds.
The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified advisor.